Apple Analyst Slashes Price Forecast On Weak iPhone Demand, AI Revenue Despite Less Tariff Risk

Jefferies analyst Edison Lee upgraded Apple Inc AAPL from Underperform to Hold and lowered the price target from $202.33 to $167.88 on Wednesday.

Lee’s base case remains that Apple would be exempted from U.S. tariffs, given its commitment to invest $500 billion in the U.S. over the next four years and his belief that it would make additional manufacturing investment commitments in the US (to make iPhones, for example).

However, a rising global recession risk could further impact already-weak iPhone demand.

The analyst lowered his iPhone shipment forecasts by 3.6% for fiscal 2025, 7.7% for fiscal 2026, and 5.5% for fiscal 2027 (without changing ASP and margin assumptions). This drives cuts of 2% for fiscal 2025, 4.1% for fiscal 2026, and 3.5% for fiscal 2027 revenue.

Also Read: Apple Faces Up To 90% Cost Surge On iPhones If US Tariffs Stick: Analyst Looks At Possible Shift To India, Price Increase

He also included a $50 price hike for iPhone 18 (2026, except the base model) and another $100 hike for iPhone 19 (2027, all models), driven mainly by higher hardware costs due to more memory and the introduction of advanced packaging and fast DRAM by 2027.

Lee’s fiscal 2025, fiscal 2026, and fiscal 2027 EPS are now below consensus by 2.5%, 8.5%, and 3.4%.

The analyst noted the two headwinds facing AI on smartphones (not just iPhone) are a lack of fast DRAM and advanced packaging solutions (the smartphone version of HBM and CoWoS), which limits the AI model size, and a lack of access to app data, which means limited understanding of the users’ social/ business contacts, daily schedules, and habits.

Lee noted that the hardware needed to run bigger smartphone AI models will be commercialized in 2027, assuming Apple will be the first smartphone OEM to adopt that (iPhone 19).

However, the second headwind is a structural problem that may not be easy to resolve since smartphone apps are a fragmented market with many players.

Most players, such as Alphabet Inc GOOG GOOGL and Meta Platforms Inc META, may not want to share data with Apple.

As a result, Lee cut his AI revenue forecasts (as of fiscal 2028) by using only the installed base of iPhone 19 and beyond and lower-paying penetration rates (20% to 50% versus 50% to 75%). This has led to cuts in Lee’s fiscal 2028 to fiscal 2031E EPS forecasts by 18% to 19%.

Even if Lee assumed Apple is exempted from US tariffs, its current valuation at 2.2 times fiscal 2025 PEG is far from cheap. If Apple has to bear all the tariff burden, the analyst estimated the fiscal 2025 and 2026 EPS impact at 14% and 12%, and the DCF would fall to $150. At 104% tariff for China, the fiscal 2025 and 2026 EPS impact would rise to 26% and 21%, and DCF would fall further to $126.

For Apple, Lee projected second-quarter revenue of $91.56 billion and EPS of $1.58.

Price Action: Apple stock is down 5.83% to $187.25 at last check Thursday.

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